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CentralNic launches share buyback after strong quarter


CentralNic [LON:CNIC], the AIM-listed IT company operating in digital advertising and domain name management, published its financial results for the three months ending 31st March 2023 today (15th May).

We last reported on the London-based security software company in November and the CentralNic opened trading today at 116p and has offered a -26.9% year-to-date return with a -10.2% one year return. CentralNic’s shares ranged from 106.5p to 160p over a 52-week period and the company has a market capitalization of GBP327.3m.

The share price belies a year of progress. In its latest update CentralNic reported that it had increased its gross revenue by 24% to USD194.9m (GBP156.1m) with net revenue/gross profit also increasing by 15% to USD45.8m and EBITDA increasing by the same factor to USD21.3m.

However, operating profit declined to USD7.7m, a 23% fall. The company attributed this fall to: “an increase in non-cash charges such as amortization expense.” Earnings-per-share was up 23% to 5.54 cents and despite buying USD4m of its own shares back, CentralNic managed to reduce net debt by nearly 13% from USD56.6m to USD49.3m, a USD7.7m cut.

As previously reported, CentralNic focuses on digital advertising and domain name management, in addition to associated products and services, including web hosting and domain parking. The firm, founded at the beginning of the century by Stephen Dyer, aims to enable the global online economy to realise its full potential by providing the world’s most popular platforms and connecting customers with the tools to achieve their online aspirations.

CentralNic has grown significantly over the past few years and has recently been made a constituent of both the AIM50 and AIM100 indices. The group has annually doubled in size in six out of the past seven years through a combination of organic growth, winning new clients, and by acquisitions.

The company’s online presence product provides tools for businesses to go online, such as reseller, registry operator, registry service provider, retail, and computer software channels, as well as strategic consultancy and related services. Online marketing offers advertising placement services for domain name owners, content website operators, and e-commerce website operators. It also sells domain names to registrants.

Meeting expectations

The company is expecting to continue steady growth, with analysts predicting revenue within a range of USD 771.8m and USD 833.7m for the full year and between USD 90.9m and USD 97.8m for full-year earnings, the company said: “The group continued to trade at least in line with current market expectations during the period, driven by ongoing market share gains of its proprietary privacy-safe, AI based customer journeys which address a multi-billion-dollar opportunity […] therefore, the directors expect that the group will trade at least in line with current market expectations for the full year.”

Shareholders should have been happy – especially given the dividend-shy nature of the tech industry – as CentralNic issued its first dividend with a final dividend of 1.0p payable on 16th June 2023 after approval at the AGM. The company said: “[This reflects] a renewed capital allocation policy geared towards greater returns to shareholders.”

But that pool of shareholders is decreasing. The company completed a GBP4m share buyback in June last year, and today launched a second share buyback scheme of GBP4m. The company said: “The board considers the buyback programme to be in the best interests of all shareholders, given the cash-generative nature of the business and the performance at least in line with current market expectations. It reflects the group’s renewed capital allocation policy geared towards greater returns to shareholders.” The buyback programme will conclude on 14th August and has appointed Zeus Capital as scheme managers.

CentralNic also published it executive incentive scheme today with CEO, Michael Riedl and CFO, William Green given long-term incentive targets subject to stretching performance targets based on Total Shareholder Return (TSR) measured from 1st January 2023. Hitting a target of increasing TSR by 20% would grant the executives 100% of the award. Increasing TSR by less than 10% would offer no-reward and between 10% and 20% offering management 25% of the award.

Increased visitor numbers

Despite the Covid lockdown being a distant memory where bedrooms became boardrooms, and dining rooms becoming shopping malls, despite more people returning to the office and the high street ‘WFH’ is still a thing, with the weekly Zoom or Teams call still part of most office worker’s schedules and more people shopping online now with high street face-to-face footfall falling. CentralNic develops the infrastructure behind the e-commerce industry, providing “tools for those who wish to go beyond consuming internet content. CentralNic’s services are designed for those who seek to contribute, to communicate, to build, to promote and to earn online,” and reported the number of visitor sessions it hosted increased by 70% to 5 billion for the trailing twelve months of 2023 from 3 billion for the trailing twelve-month period ended 31st March 2022 and the revenue per thousand sessions increased by 12% from USD91 to USD102.

The company also expanded its partnership with Microsoft [NASDAQ:MSFT]’s Bing browser and was pleased to report its first international expansion of its product review business with dedicated to France, the second largest market for its key e-commerce partner Amazon [NASDAQ:AMZN] within the EU.

‘Highly resilient’

Riedl said in a statement: “I am pleased to announce that CentralNic has achieved highly resilient results in the first quarter of the year, demonstrating our industry leadership and reputation for excellence. We have secured key partnerships with the world’s leading technology companies including Google, Amazon and recently Microsoft, a testament to the strength and quality of our offering. We are confident in our business model and our ability to continue delivering high-quality earnings and strong growth.”

Bridgewise gives CentralNic an ‘Underperform’ rating. The analyst said: “CentralNic Group Plc has released disappointing financial statements, particularly highlighting the weakness in Net Capital Expenditure and Return on Equity Ratio (ROE) which were notably weaker relative to its peers in the Information Technology sector. Furthermore, the company belongs to the IT Services industry, thereby increasing its exposure to additional risks such as a sharper than expected increase in inflation, which will make it difficult for the company to raise prices accordingly. Analysis of past performance in the Information Technology sector reveals a correlation of 36% and 35% between the income statement and the balance sheet outcomes in generating excess returns, thereby decreasing the probability that the company’s stock will outperform its peers.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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